Business Context and Reporting Period
InnSuites Hospitality Trust filed its Form 10-Q for the quarter and nine months ended October 31, 2011. The Trust owned interests in five hotels totaling 843 suites in Arizona, southern California and New Mexico, and provided management, licensing and reservation services to affiliated and third-party hotels. The financial statements are unaudited and consolidated under U.S. GAAP.
Financial Performance and Position
| Metric | Nine Months 2011 | Nine Months 2010 | Change |
|---|---|---|---|
| Total revenue | $12.68 million | $11.75 million | +7.9% |
| Operating income (loss) | $44,703 | $(670,144) | Improved $714,848 |
| Consolidated net loss | $(1.11) million | $(1.86) million | Improved $750,835 |
| Net loss attributable to controlling interest | $(834,194) | $(1.36) million | Improved $528,836 |
| Basic and diluted loss per share | $(0.10) | $(0.16) | Improved $0.06 |
| Funds from operations | $135,563 | $(269,560) | Improved $405,123 |
| Adjusted EBITDA | $1.35 million | $730,119 | +84% |
For the three months ended October 31, 2011, revenue was $3.65 million, operating loss was $292,359, consolidated net loss was $676,753, and net loss attributable to controlling interest was $525,314. Revenue increased 9.3% year over year, while the quarterly operating loss improved by $201,027.
Nine-month hotel operating indicators improved: occupancy was 61.76% versus 54.48%, ADR was $70.84 versus $71.41, and REVPAR was $43.75 versus $38.90. The increase in occupancy and REVPAR was partly offset by lower room rates.
| Balance-sheet item | October 31, 2011 | January 31, 2011 |
|---|---|---|
| Cash and cash equivalents | $674,476 | $494,844 |
| Restricted cash | $84,695 | $137,174 |
| Total assets | $27.17 million | $27.94 million |
| Total liabilities | $23.53 million | $24.65 million |
| Total equity | $3.64 million | $3.28 million |
Nine-month cash flow from operations was $(101,539), compared with $(518,377) in the prior-year period. Investing cash flow was $(567,726), including $620,205 of hotel improvements and additions. Financing activities provided $848,897, including $1.92 million from sales of non-controlling interests, partially offset by $640,954 of mortgage principal payments and $115,181 of treasury-share repurchases.
Mortgage notes payable totaled approximately $21.44 million, including $8.10 million classified as current. The $500,000 revolving credit facility was extended to May 23, 2012; only $8 was drawn at October 31, 2011.
Material Changes Versus the Prior Comparable Period
- Revenue increased 7.9% for the nine-month period and 9.3% for the quarter, driven primarily by higher occupancy and room revenue.
- Total expenses increased only 1.3% for the nine-month period, supporting the improvement from an operating loss to operating income.
- Repairs and maintenance expense increased 24.7% to $1.10 million for the nine months, primarily because of significant projects at the Yuma and Tucson St. Mary’s properties.
- Interest expense declined modestly to $1.16 million for the nine months from $1.19 million.
- The Partnership sold additional interests in the Albuquerque and Tucson Foothills entities. The sales reduced the Trust’s ownership interests and generated equity proceeds without a gain or loss in operations.
- The Trust repurchased 27,355 shares during the quarter at an average price of $2.14 per share and retained authorization to repurchase 155,288 additional units or shares.
Guidance, Outlook, Risks and Unusual Items
- Management expected improving economic conditions to support business levels for the remainder of fiscal 2012, but stated that occupancy, room rates and REVPAR could decline because of economic, travel-industry, competitive or seasonal conditions.
- Management projected that operating cash flow alone might not cover all obligations for the remainder of fiscal 2012. It expected liquidity to be sufficient based on cash balances, operating cash flow, Tucson Foothills ownership-sale proceeds and available credit, assuming extension or refinancing of the Ontario mortgage.
- The approximately $7.5 million Ontario, California mortgage matured on May 11, 2011. The lender could declare the balance immediately due. The Trust had not made the October or November 2011 monthly principal and interest payments, was negotiating a modification or extension, and accrued $14,228 of late fees during the quarter. The note provides for default interest at 5% above the stated rate.
- Mortgage principal due was approximately $7.6 million for the remainder of fiscal 2012 and $8.1 million for the period November 1, 2011 through October 31, 2012.
- The Trust was not in compliance with the NYSE Amex stockholders’ equity standard requiring at least $4.0 million. It had submitted a compliance plan and expected to regain compliance within the applicable 18-month plan period.
- Priority distributions related to the Albuquerque and Tucson entities are cumulative, but the Trust stated that it does not guarantee or otherwise owe those distributions.
- Operations are seasonal, and the Trust remains exposed to interest-rate changes, refinancing risk, hotel demand and pricing, franchise relationships, competition, litigation, natural disasters and other hospitality-industry risks.
Important Facts for Investors to Verify
- Progress and final terms of the Ontario mortgage extension, restructuring or refinancing, including any default interest, penalties or enforcement action.
- Availability and sufficiency of liquidity to meet near-term mortgage maturities, operating obligations and capital expenditures.
- Whether hotel occupancy, ADR and REVPAR improvements continue, particularly given the decline in ADR.
- The effect of selling non-controlling interests in Albuquerque and Tucson Foothills on future cash flows, ownership percentages and distributions.
- Whether the Trust regains compliance with the NYSE Amex minimum-equity listing standard.
- The filing text does not provide a clear dividend or distribution declaration for the reporting period; investors should verify current and prospective distributions separately.